-- Posted Sunday, 31 March 2013 | | Disqus

Depositors in the beleaguered Bank of Cyprus are now facing losses of 60 per cent on deposits over 100,000 euros as the Cyprus Government seems to have woken up to the fact that this is its last chance to steal money off these mainly foreign depositors. It’s an absolute travesty and a red letter day for European Union banks.

Bank of Cyprus customers will have 37.5 per cent of their deposits above 100,000 euros converted into what are practically worthless shares, said the Nicosia-based central bank in an e-mailed statement seen by Bloomberg. A further 22.5 per cent of these deposits will be ‘temporarily withheld’ to ensure the lender meets the terms of its recapitalization.

ATM limits

Even smaller depositors are currently blocked from withdrawing more than 300 euro per day via ATM from their accounts under unprecdented capital controls. The European Union is supposed to safeguard the free movement of people, trade and capital as its raison d’etre.

These capital controls also mean that the remaining 40 per cent of Bank of Cyprus deposits above 100,000 euros that are not subject to the bail-in will also be ‘temporarily frozen to ensure the lender’s liquidity’, said the central bank, though it promised that this money, ‘which won’t be used to recapitalize the lender’, will receive interest at 10 per cent above current levels and be released ‘within a short time-frame’.

To any honest observer it is pretty obvious what has happened. The Cyprus Government is looking after its own people now, and realizing that the game is up as an offshore banking centre it is holding on to these deposits under any ruse for as long as possible.

How can this be happening inside the EU? Where are the competent EU authorities? How can they be participating in a bail-in that behaves like this? What message does this send to anybody with funds in an EU bank in one of its many heavily indebted member states?

Stealing from deposits

Money in EU bank accounts is clearly now up for grabs by any government that recapitalizes its banking sector. Moreover, the Cyprus precedent is going to cause a run on the weaker banks that will make this sort of recapitalization inevitable. Standby for a systemic banking crisis in the EU.

What the EU has done in Cyprus is the modern equivalent of the failure of the Credit Anstaldt in 1931 that brought on the Great Depression with thousands of banking falures around the world.

The ArabianMoney investment newsletter published today advocates a shift to non-euro cash deposits (subscribe here) as financial markets face a 2008-style correction.

-- Posted Sunday, 31 March 2013 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link

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